Revival of the owner carry or seller financing is definitely in our future. Owner carry loans were virtually non existent during the credit friendly years when you could get a first, second and third loan with adjustable rates on one or all of the above (and why not make a no-doc loan on top of all that) and a home would appreciate over night. If there were ever any financial problems, the house could be sold for a profit. Sure these weird loans were the minority of loans (at least in our area), but all the same the impact of these lending practices have been felt through out the nation.
Credit scoring is tighter these days and higher credit is necessary to qualify for “penalty free” loans your credit has to be up to at least 720. Bankruptcies and tight credit are things that are here for awhile. We have come across many people that are coming in from out of the area that have either been foreclosed on or have had their credit battered by a pre-foreclosure situation or might be looking for a Lease Options (a different scenario) while they wait for their home to sell in an area that they are coming from.
Sellers need to get creative in this market and be proactive. One way is to be able to offer seller financing if the Seller owns the property out right. A seller could potentially get closer to asking price with seller financing until the Buyers are in good enough standings with their credit to refinance with a conventional loan. Sure there are risks…landlords take risks with every new tenant and sometimes things don’t work out for the best, but for the Seller who might have a financial buffer and who is ready to move into a new home, seller finance might be their ticket forward.
A rough look at the process is simple:
- The Buyer usually would some cash towards the purchase price (the higher the amount the better).
- Terms are drafted by an attorney the Seller holds the note (like a bank on a conventional loan), so if payment aren’t made then the Seller get the property back.
Any Seller who chooses to go this route would need to speak in depth with a tax accountant. There are some additional taxing strategies out there that might work better one way or the other. But that is the rough idea of it.